John Feldt ERPA CPC QPA

hilarious

Test on a contributions basis, impute disparity at 100% TWB.

They do not count against the 404(a)(7) limit. So , yes, it can be good for an owner-only DB/DC combo where the owner is not wanting (or needing) all contributions to be tax deductble.

What does the employer want to do? Do they want to pick just one employee (perhaps the lowest cost employee based on their wages and number of years to retirement) and give them a benefit in the cash balance plan? Or do they feel that covering just one would potentially cause some internal employee relationship problems? If so, are they willing to spend a little more to provide a perceived uniform benefit (although still only one non-owner employee might actually be considered as benefitting high enough for the 401(a)(26) test)? Once you find out, amend the plan accordingly. Combine the plans for coverage testing and 401(a)(4) testing. Hopefully the original design anticipated an employee getting into the cash balance plan so that the employee benefit cost isn't sky high. Remember, you can offset the overall gateway minimum by the actuarial value as a percent of pay of the cash balance pay/service credit provided to the NHCE (which is NOT equal to the cash balance credit itself). If multiple NHCEs receive cash balance pay/service credits, you can offset evenly (most common) by the average actuarial value, as a percent of pay, of the cash balance pay/service credits for each NHCE. Alternatively (not as common), you could offset each NHCE's gateway by the actuarial value, as a percent of pay, of their own cash balance pay/service credit.

Why not show the efficiency of just the employer dollars as your first total, then on separate line below that include an efficiency with the owner deferrals included. You can explain that the actual efficiency lies somewhere in between but is based on the owners' individual tax situations.

Right, using comp prior to entry or not is a plan provision and can be excluded regardless of whether the1/3 gateway or the 5% gateway applies. I was trying to point out the difference between the compensation definition that can be used for the 1/3 gateway vs. the compensation definition that must be used for the 5% gateway. For example, if the plan excludes bonuses, then you can use that for the 1/3 gateway, but the bonus can't be excluded if the 5% gateway applies. Just a minor point.

If the benefits you describe will pass the nondiscrimination test and if you think defining the plan's crediting rate at zero percent will be okay with the IRS (I'm not sure on that, but it seems okay). Using a lower crediting rate generally translates into a much, much higher cash balance pay credit or service credit requirement for the NHCEs in order to pass 401(a)(26), so you might want to look at more scenarios than just one at zero percent. As to the choice of investment, I tend to think of the DB assets as the conservative portion of a larger portfolio because in a DB plan (a cash balance plan is a DB plan), there is one more very important factor that does not apply to a defined contribution plan. This factor must be considered when deciding on the investments to choose, and that perhaps this factor may be the most important factor of all: the risk of having the investments not doing as well as expected is not just a loss, it is a loss that causes the employer to have to contribute more to the plan. I am not investment savvy, so don't take this as investment advice!

Matching contributions are not included in determining the highest HCE rate of nonelective allocations for determining the gateway minimum. Thus, the gateway minimum is 3.34% of the plan's definition of compensation for nonelective allocation purposes. This is 1/3 of the highested nonelective allocation given to any HCE in the plan. If the highest HCE nonelective allocation was over 15%, then the 5% minimum gateway applies, but that is generally 5% of total compensation, not of plan-defined compensation. However, if no nonelective is allocated to an NHCE, then no gateway applies to them. For example, if the plan is top heavy and an employee quits before the last day, and your plan has each participant in their own allocation rate class, and if coverage can still pass the ratio percent test for the nonelective portion of the plan with this employee getting a zero, and if they are not getting any forfeiture allocated as a nonelective, then because no nonelective is allocated to them, no gateway applies. But any allocation at all to such NHCE thus triggers the full gateway requirement for them. Reminder, as I can tell you know, but perhaps for some other readers here, the gateway merely allows the plan to test the allocations as benefits payable as annuities at the testing age. Merely providing the gateway does not mean the plan actually passes the 401(a)(4) test.

If an employer makes a "mistake" and establishes a new qualified plan, that negates the SIMPLE, disallowing any contibutions made to that SIMPLE for the years in which both plans are maintained. The Q&A above does not mention this, but if the employer adopts a regular qualified plan, it should say that no contributions should be made to the SIMPLE and any contributions already made to the SIMPLE during the same year will have some corrective steps that need to be applied. See item 3 on this link:http://www.irs.gov/Retirement-Plans/SIMPLE-IRA-Plan-Fix-It-Guide and see this link: http://www.irs.gov/Retirement-Plans/SIMPLE-IRA-Plan-Fix-It-Guide-Your-business-sponsors-another-qualified-plan

Pretty sure that document's checkbox for "100% vesting upon death" only applies to employees that separate service due to death, not just to participant death. Check with Robert Richter or someone at SunGard.

Seems unlikely that a document would truly allow full vesting. Suppose the employee terminated 3 decades ago, was 40% vested at that time, and dies now or reached normal retirement age now. Does the plan say anything about when forfeitures occur?

As long as you understand that "elect" means the written and executed (signed) adoption agreement for the plan had been properly marked with the checkbox that defines compensation as W-2 wages.

Once you get a feel for how this works, however, I agree that the Larry Deutsch Enterprises' Non-discrimination Testing Symposium is very much worth the cost to attend. It was exremely worthwhile for me anyway. Now with another portion of the cash balance regulations being finalized, I am considering attending another (so I can ask a bunch of questions).

If it's an individual plan with a Roth option, you can contribute deferrals as Roth and the employer dollars go in as pre-tax - then convert all of that thar account to Roth if you are so inclined. But if your compensation is so low that the employer pre-tax contribution is limited by the deduction limit, then that's where the after-tax contribution can help you. Assuming a future Congress won't tax Roth accounts, something like their promise to not tax social security.

The partnership must determine and approve the amount to allocate, not the individual participant. Same problem exists with a sole prop. The sole prop must determine the amount, not the participant. Has the IRS tried to make an actual case against this for any plans?

Possibly applicable citations: Internal Revenue Code Section 411(d)(3)(B), Treasury Regulation 1.411(d)-2(d), IRS Announcement 94-101, and Treasury Regulation 1.401-1(b).

Great, I can only imagine how this will affect their mortaility table. I don't see how they can decide to receive a W-2 or K-1. I'm of the understanding that you are either a partner in a partnership and thus the profits/losses are controlled/attributed by/to you (K-1 applies), or that you are an employee and the use of profits/losses are not controlled by employees. Regardless, each NHCE receiving any nonelective allocation is thus required to receive the gateway (unless they are under 21/1 and the OEE rule is applied). Because you have each person in their own rate group for allocations, they do not all have to max out even if other similar employees are maxing out. The plan could exclude the HCEs from the 3% SH nonelective. By doing this, if the plan is also not top heavy, you do not have to give the gateway to any employee who is not getting any nonelective allocation. If the non-equity partners are considered as NHCEs because the 20% TPG election being applied, perhaps removing the TPG election will help.

Of course, thanks. The 2-year idea was on my brain at the time of the post as we were proposing a 2-plan combo: profit sharing, not 401(k), with DB - both with a 2-year entry requirement.

Could even consider having a 2-year of service requirement with 1,000 hours per each year, if that helps. You'll have to have immediate vesting then of course.

So if the relationship could impair the fiduciary regarding the perfromance of their duties, that would be a fiduciary breach, even if it is not a PT?

Elective deferrals taken into account for purposes of calculating the enhanced match cannot exceed 6% of compensation. In your example above you have 7% of pay deferred gets the employee a match of 5% of pay. The 7% deferral exceeds 6%, so it is outside the parameters for an enhanced safe harbor matching formula.

In one of the big provider's PPA document, it states that the effective date of the plan's inability to apply forfeitures to offset the employer safe harbor contribution is the first day of the plan year following the plan year in which the initial PPA restatement is executed (since a SH plan can't be changed mid-year). The plan has an IRS advisory letter. So, for those calendar year plans restating in 2016 before May 1, this provision is not effective until 1-1-2017 according to that plan's document.

Not all brothers are complete strangers. We still play cards from time-to-time, just not as often anymore.

J Simmons, are you suggesting that the fiduciary of the plan is engaging in self-dealing by allowing his brother to receive compensation from the plan?

415 limits are tied to compensation, so yes, they require something in that column.